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Mourners at a funeralPlanning a funeral can be an expensive prospect. The average funeral costs more than $7,000 and in many cases as much as $10,000 – or more, depending on the arrangements. Prepaid funeral plans offer a way to help manage those costs while easing the financial and emotional burden of planning a funeral for your loved ones. Whether it makes sense with your budget to purchase a prepaid funeral plan can depend on your wishes as well as your financial situation. There are different ways to preplan a funeral and it’s important to consider what’s involved in the process along with the cost.

What Are Prepaid Funeral Plans?

A prepaid funeral plan simply involves making all the arrangements for a funeral and paying for it prior to your death. This plan can be tailored to your wishes and those of your family and cover everything from where the funeral should take place to whether you should be buried or cremated.

Having a prepaid funeral plan means the funeral home knows what you do or don’t want to happen once you pass away. And because you’ve paid ahead, there are no lingering bills or funeral costs for your family members to worry about.

How Prepaid Funeral Plans Work

Preplanning a funeral typically means sitting down with your loved ones to map out the details of your funeral. For example, that might include specifying:

  • Where the funeral should be held
  • Whether you want a burial or cremation
  • What type of casket or urn you’d prefer
  • Whether any type of viewing will be allowed
  • Which songs or type of music should be played at the funeral
  • What kind of flowers you’d like to have
  • Who will deliver your eulogy
  • What should be on your headstone or memorial plaque
  • What should be included in your obituary

A prepaid funeral plan can be as detailed as you like. If you’re unsure of what kinds of things to include, you and your family may want to meet with a funeral home director to discuss typical arrangement options.

Once you and your loved ones work out the details of what will happen at the funeral, the next step is deciding how to pay for it.

Types of Prepaid Funeral Plans

Prepaid funeral plans aren’t one-size-fits-all when it comes to how you pay for them. There are several options you can choose from, depending on your estimated costs and needs, including:

Life insurance policies can provide your chosen beneficiary with money to pay for funeral expenses, as well as other expenses. For instance, you might purchase a life insurance policy naming your spouse as the beneficiary that will give them enough funds to pay for your funeral and your mortgage, while also covering basic living expenses.

Burial insurance is a specific type of insurance policy that’s designed to help you pay for burial expenses. With this kind of insurance, it may be possible to name the funeral home or funeral director as the beneficiary of the policy if your state allows it. In that case, it would be the responsibility of someone you have chosen for filing a claim with the life insurance company to collect the death benefit.

A trust is another option for transferring assets that you’d want to use for funeral planning. A trustee is responsible for managing assets in the trust according to your wishes on behalf of the trust beneficiaries. You can set up a revocable living trust, which could be changed in your lifetime if needed, or an irrevocable trust. An irrevocable trust makes the transfer of assets permanent so think carefully about which type of trust would be more appropriate.

If you’re married, an easier solution may be opening a joint bank account with your spouse and depositing the funds you want to earmark for funeral expenses into it. This way, they can write checks or make withdrawals as needed to cover funeral and burial costs without having to go through the insurance company. And if there’s extra money left after your funeral expenses are paid, they could use that as needed to pay other expenses.

A POD account, also called a Totten Trust, could be an option if you’re unmarried or a widow(er). With this type of account, you can hold money on behalf of a beneficiary, but they can’t access the funds until you pass away. If you’re considering a POD account, it’s important to make sure you choose a beneficiary that you can count on to carry out your funeral plans.

Pros and Cons of Prepaid Funeral Plans

Spouse packs up after husband's death

The chief advantage of having a prepaid funeral plan is that it allows you to take the burden of planning your funeral off your loved ones’ shoulders. You can make all of the arrangements and pay for them up front or arrange for them to be paid using life insurance, a joint bank account or a POD. That means they don’t have to try to make choices about your funeral arrangements or deal with the bills for funeral expenses when they’re in the initial stages of mourning.

On the other hand, preplanning a funeral can have some risks if you’re also prepaying for it. If you pay your chosen funeral home for the entire cost of the funeral, for example, but the funeral home goes out of business before you pass away it might be difficult to get that money back. For that reason, you may be better off creating a funeral plan and setting the money to pay for it aside rather than paying outright.

The Bottom Line

Christians worshipping GodPlanning your funeral in advance can make a stressful event less so for your loved ones. And it can offer you reassurance as well that your wishes are being carried out and your final expenses are paid for. But it’s important to consider any potential downsides of prepaid funeral planning before you commit your time, energy and funds to creating one. Keep in mind that you have other options than a prepaid funeral plan.

Tips for Investing

  • Consider talking to your financial advisor as well to determine whether prepaying for a funeral is the right move. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool can help you find a professional advisor in your local area. It takes just a few minutes to get your personalized recommendations online. If you’re ready, get started now.
  • If you’re thinking of purchasing a life insurance policy to help pay for funeral expenses, consider whether it makes sense to get a term life or permanent life policy. Term life insurance can offer lower premiums but permanent life insurance covers you for life. And some policies, such as universal life insurance, also offer an investment component that can help you grow your money over time.

Photo credit: ©iStock.com/itsxtian, ©iStock.com/TK, ©iStock.com/Kalawin

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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